How are you, Juan? How was your vacation, did you enjoy your time in San Francisco?

Pre-Calculus

TutorMe

Question:

What is i^2?

Juan M.

Answer:

-1

Finance

TutorMe

Question:

Walk me through a Discounted Cash Flow model.

Juan M.

Answer:

A DCF values a company based on the present value of it's future cash flows (which includes it's terminal value).
1. The first step is to project out the company's financials. You use assumptions for revenue growth, expenses, and working capital.
2. You then work your way down to Free Cash Flow for each year.
3. You then discount them using WACC (weighted average cost of capital) to the PV and add them up.
4. You then calculate the company's terminal value using multiples or the Gordon Growth Model. You also discount this to the PV using WACC.
5. Add up all the PV and you have the Enterprise value of the firm.

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